BT-NASSCOM-GARTNER ROUNDTABLE: Panalists (from left) Michele Caminos, Senior Analyst, Gartner, Ian Marriott, Research Director, Gartner Research, Satoshi Yamanoi, Principal Analyst, Gartner Dataquest (IT Services), Japan, Bobb Hayward, Senior VP, Gartner (APAC), Sujoy Chohan, Country Director, Gartner (India), Sunil Mehta, VP, Nasscom, Arun Seth, MD, British Telecom India, Rita Terdiman, VP & Research Director, Gartner, and Geoff Johnson, Research Director, Gartner Research at the summit held in Mumbai on September 25-26

After years of bruising growth, the IT industry in India has hit the brakes hard. Last year, although revenues crossed the magical $10-billion mark, there wasn't much jubilation in the industry. For one, the downturn in the US has slowed it services growth to less than 30 per cent. The only silver lining is the robust growth in it-enabled services, where revenues grew at an impressive 70 per cent last year. Now, the Indian vendors-especially in it services-are searching for new strategies and new markets. Some questions top of the mind: How to increase the outsourcing business? How to move from plain vanilla it services to business transformation consulting? And how to open up markets in Europe and Japan? At the Nasscom-Gartner Summit 2002 held in Mumbai on September 25 and 26, BT brought together a panel of experts to debate the issues. Seven of them were Gartner analysts, including Sujoy Chohan, Group Vice President & Country Director, Gartner (India); Bob Hayward, Senior Vice President, Gartner (APAC); Rita Terdiman, Vice President and Research Director; Michele Caminos, Senior Analyst; Satoshi Yamanoi, Principal Analyst for Gartner Dataquest's it services in Japan; Ian Marriott, and Geoff Johnson, Research Directors, Gartner Research. Nasscom was represented by Vice President Sunil Mehta, and Arun Seth, MD of British Telecom India & saarc. Excerpts from the discussion:

Business Today: Welcome, ladies and gentlemen, to the BT-Nasscom-Gartner roundtable. Let me kick off the discussion by asking Sunil what the industry's key learnings have been in the last one year.

"Expertise is what people are really looking for. One of the big challenges for India is to move more towards BPO services away from traditional software development services and project management" Bob Hayward, Senior VP, Gartner (APAC)	"Faster, better, cheaper and greater productivity are things that American customers and companies understand. Certifications, they don't" Rita Terdiman, VP, Gartner

Sunil Mehta: Some new and some not-so-new issues have been brought to focus. One is that the vendors need to pay more attention to business continuity planning and security practices. Two, margins have to be managed better because of the growing bias towards fixed-price contracts. Then, all Indian vendors are reconciling to the fact that the days of 25-30 per cent net margins are gone. Almost all of them are focussing on strong volume growth and are willing to sacrifice profits in order to ensure volume growth.

Business Today: Bob, price is obviously a big issue. But is that the only thing that customers are looking for?

Bob Hayward: I don't think so. Expertise is really what people are looking for. So one of the big challenges for India is to move more towards BPO services away from traditional software development services and project management services. It sometimes worries me that people seem to think making this transition is a done deal. It is a difficult transition to make, because you are selling a different thing to a very different audience. Pricing is definitely a concern, but process expertise is more important. It's not readily obvious to me that any Indian company has that today.

BT: Arun, do you agree with that assessment?

"We see the Asia-Pacific IT services market growing from $28.4 billion in 2001 to $46.4 billion by 2005. China is the second fastest growing market, but there are lots of opportunities for Indian vendors" Michele Caminos, Senior Analyst, Gartner	"One of the key things in BPO is matrix. If you can't define it in your client organisation or supply organisation, then it's very difficult to manage your relationships" Sujoy Chohan, Country Director, Gartner (India)

Arun Seth: As far as Nasscom is concerned, we are telling our members that price is only one aspect. The other thing is quality. Look at the number of Indian vendors with quality certifications...

BT: I can see Rita smiling, because just this morning she was telling her audience how American companies don't understand quality certifications like CMM Level 5.

Rita Terdiman: Quality and quality certifications are immensely important because they allow Indian companies to do their business better. But I don't think that they sell it as well as they can to American customers. Faster, better, cheaper and greater productivity are things American customers understand. Certifications, they don't.

Sujoy Chohan: The success of some of the BPO ventures spawned by MNC backoffices has got a lot of people to believe that they can get into this business. That includes some real estate companies. This has created a huge oversupply in the industry and sooner or later that will hurt bottomlines.

BT: There's also the issue that Bob raised, which is understanding your customer's business and processes, of developing specific skills.

Rita: Well, one way they can do that is by hiring Americans. Or hire Indians or anyone who has been there, done that, people who-like I said today-walk the walk and talk the talk. To me, that's the most important thing. Any industry or company in any geography has its own culture, its vocabulary, and you just have to know it. That's one reason why you need to hire people from user organisations.

"You can't have people coming here just for 5-6 years. You got to have transition here. Otherwise, having an expat run the team will add to your costs" Arun Seth, MD, British Telecom India	"The natural beachhead to Europe is the UK. If you look at Germany, Switzerland, and Austria, you have 23 per cent of Europe. That's a good entry point too" Geoff Johnson, Research Director, Gartner

Arun: This is part of the transition that Bob referred to earlier. You can't have people coming here just for five or six years. You got to have transition here. Otherwise, having an expat running the team will add to your costs.

BT: Rita, is the pricing flexible enough to justify the cost of hiring, say, an American CEO or head of marketing?

Rita: You don't need a million of these people. You need them in two ways: to do business development and to strategise. As Bob said, skill transformation is important and that is going to evolve over several years.

Sujoy: One of the key things in BPO is matrix. If you can't define your matrix in your client organisation or supply organisation, then it's very difficult to manage your relationships. How many companies know what is the cost of making one pay cheque or making one transaction or making accounting entries? No one has looked into process costs. As the cost is broken down, the Indian vendor can say, "Okay, that cost you two dollars, we can do it in 50 cents." Suddenly, he has all the people buying. So business matrix... process matrix is important. And that's where work needs to be done.

BT: Rita, you speak of a global delivery model. How radically different is that from what exists today?

"Indian companies that have MNC clients will need to be really selfish, really aggressive and get their infrastructure and networks in place, because the clients always assume the existence of such infrastructure" Geoff Johnson, Research Director, Gartner

Rita: I would say it's radically different in the sense that you have to help both the business people as well as the IT people in various locations in the globe when it is required. So you have technical and business capability out there, not in every country by any stretch of imagination, but may be in each of the three regions of the world to help with local language, local customs, to be able to talk to the customer and to the customer's customer. And also to capitalise on the niche skills of each country, and provide back-up in case of global issues. I don't know whether even an Accenture or EDs or IBM has a global model.

BT: Michelle made an interesting point in her presentation about China being an opportunity and not a threat for Indian vendors.

Michelle: That's right. We see the Asia-Pacific it services market growing from $28.4 billion in 2001 to $46.4 billion by 2005, and China will be a key driver of this growth. In 2001, China accounted for 0.8 per cent of the world it services market, and by 2005 it should go up to 1.2 per cent. China is the second fastest growing market India, but there are lots of opportunities for Indian vendors.

BT: But on the whole, Indian service providers are still pretty much US-centric. They seem unable to replicate their success in some other markets like Europe or Japan. So, Ian, what are they doing wrong?

Ian Marriott: The position is different because you are moving from having developed some very good business in North America into another world with multiple languages and cultures. But it is possible to penetrate the European markets, and the natural beachhead is the UK. Some of the Indian vendors are looking towards countries like Poland, Hungary and Czechoslovakia, which are soon to join the EU. If you look at just Germany, Switzerland, and Austria you have 23 per cent of Europe. That's a good entry point.

BT: Yamanoi san, Japan has been eluding Indian vendors as well...

"Japanese are facing diffculty in HR and accounting BPO. They want to do it internally, they want to do it through shared services. They give it to their parent or group company and don't outsource it " Santosh Yamanoi, Analyst, Gartner Dataquest (Japan)	"All India vendors are reconciling to the fact that the days of 25-30 per cent net margins are gone. Almost all of them are focussing on strong volumes" Sunil Mehta, VP, Nasscom

Satoshi Yamanoi: We are facing some difficulty in hr and accounting BPO because Japanese users often think this can get done through secretarial work. They want to do it internally, they want to do it through shared services. They give it to their parent or group company and don't outsource it.

Arun: I'll keep the company unnamed, but it was a Japanese financial services company that wanted to move its back-office to India about two years ago. The Okinawa government gave a rate that was cheaper than India's. They subsidised the entire labour cost, making it cheaper than India's.

BT: But obviously that's not sustainable...

Geoff Johnson: There's also the network issue as far as India is concerned. Our view is that domestic Indian companies that have MNC clients will need to be really selfish, really aggressive and get their infrastructure and networks in place, because clients always assume the existence of such infrastructure and are often disappointed by the challenges of doing business with India.

BT: Some companies like Infosys and Wipro want to get into business transformation work. Is that workable?

Sunil: That depends entirely on the business model a company wants to adopt. There's no one rule.

Bob: I don't think aspiring to be a McKinsey is a very smart thing to do today. Indian companies need to work harder on vertical speciality by industry, by sector, become big in a smaller part than try to be all things to all people. If they packaged up, encapsulated their expertise and stepped back a little bit, and tried to be an Oracle or Microsoft or Siebel, there could be great potential. I also think Indian companies should diversify their skill-sets and invest in some emerging technologies and in research... in quantum computing, in the intersection between life sciences and it, and stake a claim globally for leadership in a technology as well as in the implementation of that technology.

BT: Thank you all for participating.